Vacant Land Tax

What the Welsh Government is proposing

The Welsh government has proposed a “Vacant Land Tax” (VLT) aimed at land where planning permission has been granted, or that is within a local development plan, but no work has been carried out.

The objective is to encourage regeneration and prevent the practice of land banking and land not being developed within the expected timescales. It will be used to test new Welsh Government powers to set taxes arising from the Wales Act 2014.

It was first announced as part of a shortlist of four taxes to test the new powers at the Welsh Government’s draft Budget in October, along with a social care levy, a disposable plastics tax and a tourism tax.

If approved by the Welsh Assembly, it will need to be voted through by MPs in Westminster before coming into effect.

How it will work

The Republic of Ireland Vacant Sites Levy provides a useful starting point for how a Vacant Land Tax could work in Wales. The Irish tax requires land owners to pay a charge of 3% of the market value of vacant sites if they have not been developed within 2018, with the rate rising to 7% in 2019. Local Authorities would draw up a list of vacant land which is suitable to be developed.

The first part of any revenue from the tax would be used to pay for the scheme, with the remaining revenue to support regeneration.

In terms of implementation, the Welsh Government expects the tax to be in place within three years, subject to no delays.

Response to the proposals

There has been a mixed response, with the biggest concern coming from the property sector, that such a tax could prove to be unpopular if it was seen as an increase in taxation, rather than a shift in the base of tax. The sector has instead suggested other ways of incentivising development for instance, a longer period of exemption from business rates for new development, reduced stamp duty – which is soon to be Land Transaction Tax in Wales and simplified planning conditions.

The sector has also expressed concern that such a tax would undermine Welsh Government efforts to increase housing supply in Wales, a key priority. Currently, around 7,000 new homes are being built every year in Wales yet 12,000 more are needed to tackle under supply.

There has been a cautious welcome from opposition parties, with the Welsh Conservatives while welcoming the fact that the Welsh Government is exploring the viability of such a tax, as is the case in England, they will await further details from the Finance Secretary Mark Drakeford.

We have seen a similar response from Plaid Cymru, stating that it is too early to say whether such a tax will add value and that a tax on disposable taxes was their preferred option.